Barriers to Implementing Tradable Air Pollution Permits: Problems of Regulatory Interactions

Abstract

Since 1977, the Environmental Protection Agency (EPA) has been developing and implementing an increasingly comprehensive system of "controlled trading options" for air pollution control. These programs introduce a limited market for the allocation of emissions among sources of air pollution. Starting with existing source-specific standards as a baseline, policies such as bubbles, emissions banks, netting and offsets allow firms to negotiate - within limits - trades of emissions permits in a manner that satisfies air quality standards at lower total costs. These trades, once agreed upon by the parties, in most cases must then be proposed to regulators as amendments to the existing set of source-specific standards.